What Is a DApp?

James HeadshotAuthor: James Page
Last Updated: July 2020

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The idea for Bitcoin caught on with the public from the moment it was presented by Satoshi Nakamoto, in the now-famous white paper published in 2008. From then on, the blockchain technology has been rapidly conquering the global market and has revolutionized the way we trade and transact.

It wasn’t long before software engineers became aware of the incredible potential of this technology. Blockchain was bound to probe into other spheres besides finances, as its functionality is too promising to be limited to anonymous money transfers.

Among the most useful applications of the blockchain technology are the so-called smart contracts and the follow-up decentralized applications or DApps for short. Today, our guide will focus on DApps exclusively, so stay with us while we’re dissecting this blockchain-based invention.

Decentralized Apps Explained

Back in the 1990s, Satoshi Nakamoto and other crypto enthusiasts were arguing that the financial institutions of the day were having too much power in their hands. The trust-based payment system was regarded as outdated and restrictive.

The way they saw it, people had to trust the banks to act as middlemen in their transactions, and in the process lose their privacy, time, and money. Nakamoto explained this vicious circle in the introductory part of the Bitcoin white paper:

“The cost of mediation increases transaction costs, limiting the minimum practical transaction size and cutting off the possibility for small casual transactions, and there is a broader cost in the loss of ability to make non-reversible payments for nonreversible services. With the possibility of reversal, the need for trust spreads. Merchants must be wary of their customers, hassling them for more information than they would otherwise need. A certain percentage of fraud is accepted as unavoidable. These costs and payment uncertainties can be avoided in person by using physical currency, but no mechanism exists to make payments over a communications channel without a trusted party.”

Understanding Blockchain

Luckily, Nakamoto’s new electronic payment system and the first digital currency were about to change that.

Using blockchain technology, Nakamoto created the first payment system that’s run by a decentralized peer-to-peer network, instead of having a central authority to control it. The network participants, known as miners, use proof of work (PoW) consensus mechanism to prevent double spending and confirm the authenticity of incoming transactions.

To keep it simple, you just need to know that the miners have to solve a laborious algorithmic problem that consists of running the new data through a hash function in order to generate the required hash value.

A reliable transaction is one that has been confirmed by six miners before it’s added to a new block chained to the ledger.

What Is a Smart Contract?

A smart contract is an online contract, or computer code, programmed and stored on the blockchain, whose purpose is to offer an alternative to the traditional paper-based contracts. Instead of hiring intermediaries such as lawyers and notaries, smart contracts eliminate the extra costs for escrow services.

Not only that, but the fact that they’re stored on the digital ledger makes it impossible for anyone to change the rules and conditions that the engaged parties had agreed on. Smart contracts are secure, public, and cost-effective.

They can be used for all sorts of things like tracking goods in supply chains, ensuring ownership of a property, or just booking your next flight. Now, let’s see the role they play in managing a DApp.

What Is a DApp?

You can think of a DApp as a platform for smart contracts. For example, if we want to create a DApp for renting apartments, the actual DApp would be what users download on their devices, log in, and list their apartment with a nice little description and a couple of photos. When a user clicks “Book” we automatically have a smart contract.

But how’s that different from the centralized apps that we currently use?

We can all agree that Facebook is one of the most popular centralized applications today with more than 2 billion users worldwide.

These users share all kinds of information about themselves online – their name, contact details, work, location, what they had for dinner last night. This means that Facebook has a huge database that the app can sell to marketing companies since it’s stored on its centralized server.

If Facebook was a decentralized application, you wouldn’t have to put your trust in their server because the data would be stored on a blockchain. Although public, i.e. anyone has access to it, your data would remain encrypted unless you decide to share it.

Another disadvantage of the centralized apps is that their server can easily get hacked or infected with malware, and the whole network will go down. On the other hand, DApps are run on a multiple-node network, each having a copy of the whole data. Hacking only one won’t disrupt the network.

Although we have a lot of blockchain-based platforms that support these apps, Ethereum is still the preferred one, being the first one to introduce these apps in 2015.

Examples of DApps

By now, you’re probably curious to hear about some real-life DApp examples. Let’s take a closer look at three popular DApps at the end of our guide:

  • Etherisc.

Etherisc is an open-source platform for decentralized insurance, perfect for the emerging blockchain economy and powered by Ethereum. It allows users to purchase or sell insurance, and depending on the package, they get insurance for potential flight delays, cancellations, hurricanes, etc.

This brings greater transparency to the industry and lowers operational costs. Using smart contracts, the DApp pays you out immediately once the outcome of your flight has been verified through the blockchain database.

  • Ethlance.

The Ethlance DApp is an incredible project whose goal is to decentralize the freelance market. You’re all familiar with the high service fees that both clients and freelancers have to pay to some third-parties that regulate the centralized freelance platforms. Sometimes, they even charge up to 20% of the total sum.

Now, with Ethlance, they can sign smart contracts that will be programmed to issue payments only when the work has been completed.

  • Golem.

According to their website, the Golem DApp is a decentralized network for sharing and leveraging large amounts of computing power. If you have some extra computing power you’re willing to rent, you can do that on this DApp, on a peer-to-peer basis, and receive the platform’s native token, GNT.

About The Author

James Page

James Headshot

James is the main editor. With a passion for finance and anything blockchain, cryptocurrency is right up his alley. He's responsible for most of the content on the site, trying his best to keep everything up to date and as informative as possible.

Disclaimer: Digital currencies and cryptocurrencies are volatile and can involve a lot of risk. Their prices and performance is very unpredictable and past performance is no guarantee of future performance. Consult a financial advisor or obtain your own advice independent of this site before relying and acting on the information provided.

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